Chapter 01 Test Bank

1. Current liabilities are defined as liabilities with a maturity of less than one year.

TRUE

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2.A decline in the Net fixed assets account between year-end 2016 and year-end 2017 is a clear indication that fixed assets were sold during 2017.

FALSE

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Difficulty: 2 Medium

Gradable: automatic

3.When reporting financial performance for tax purposes, U.S. companies prefer to use accelerated depreciation methods over the straight-line method.

TRUE

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4. Accounting rules require U.S. companies to depreciate research and development (R&D) expenditures using the straight-line method.

FALSE

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5.You can construct a sources and uses statement for 2017 if you have a company’s year-end balance sheets for 2017 and 2018.

FALSE

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6. A reduction in long-term debt is a use of cash.

TRUE

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7. The accrual principle requires that revenue not be recognized until payment from a sale is received.

FALSE

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Difficulty: 1 Easy

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8. An increase in cash and cash equivalents should appear as a source of cash on the sources and uses statement.

FALSE

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Difficulty: 2 Medium

Gradable: automatic

9. A cash flow statement places each source or use of cash into one of three broad categories: operating activities, investing activities, or financing activities.

TRUE

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Difficulty: 1 Easy

Gradable: automatic

10. The cost of equity is usually reported on the income statement right below interest expense.

FALSE

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Difficulty: 1 Easy

Gradable: automatic